Millrock Resources Inc. [TSX-V: MRO, USA-PK: MLRKF] is a mineral exploration company that is using the prospector and project generator business model to develop their portfolio of over a dozen highly prospective properties. Millrock specifically targets early stage exploration projects with geological potential to host large bulk tonnage gold-copper deposits in Alaska, and copper porphyry deposits in Arizona.

The company’s “project generator” business model leverages their geological and operational expertise in making big discoveries by using joint venture (JV) partners to fund the most risky and capital intensive early stage assessment work. This model also allows Millrock to spread exploration risk across their portfolio of over a dozen projects, plus generates positive cash flow from management fees and option payments. These revenues pay for the company’s overhead and prepare new acquisitions for future JVs. Both strategies help maintain their share structure of about 87 Million shares fully diluted, while also providing upside exposure. Should any, or many, of their projects pan out, the company’s carried interests in an elephant sized discovery would quickly become a lot of metal in the ground at a relatively low cost and minimal risk to shareholders.

(Chart courtesy of Millrock Resources)

Millrock’s portfolio includes over a dozen exceptional prospects, as indicated by the caliber of their JV partners who are major mining companies and reputable junior explorers. In 2011 a total of almost $16 Million will be spent exploring these properties, of which their portion will be only about $1.5 Million. The following figure outlines the JV expenditures per partner and their percentage of the overall budget –about $11.4 Million will be spent in Alaska, with the remaining $4.5 Million going into Arizona exploration.

Millrock Resources’ Market Capitalization has recently pulled back to about $40.6 Million, since they are trading around C$0.58 per share with 70 Million shares Issued and Outstanding, and almost 87 Million shares Fully Diluted. The company presently has about $4 Million in cash in their treasury. Because future dilution of their share structure is limited, drilling a major discovery at any of their active prospects could help push this micro-cap’s share price upwards substantially.

Management

Millrock is based in Anchorage and managed by local Alaskans who have played major roles in some of the state’s most important mineral projects. The company’s President and CEO Greg Beischer is a geologist and mining engineering technologist who previously worked with Inco, and also for Alaska Native Corporations. VP Exploration Phil St. George previously worked on two significant Alaskan gold projects, first discovering the enormous Pebble deposit as a young geologist with Cominco (now Teck Resources, or “Teck”), and then helping develop Donlin Creek as NovaGold’s VP Exploration. Millrock’s VP Operations Dr. Adrienne Ross is a geologist who previously worked for Homestake, Placer Dome, Tanamin, and Cedar Mountain. Sarah Whicker is an environmental scientist who works with stakeholders, residents, native corporations, and the local and state governments to help support mineral development as VP Sustainability. In total they have about 15 employees, plus about 40 to 50 seasonal field workers.

Management and insiders own about 10% of the company. The reputable “prospector generator” Altius Minerals [TSX.ALS] also owns 10% through their strategic partnership. The major gold mining company Kinross owns over 6.5% from participation in two of Millrock’s financings. Teck also has almost 4% of Millrock after recently exercising their warrants, which put about $0.72 Million in the company’s treasury.

Millrock’s portfolio has over a dozen projects that are being actively explored, with about two thirds bulk tonnage gold and copper prospects in Alaska, and the rest copper porphyry projects in Arizona.

Alaska Projects

Millrock has numerous early stage exploration projects in some of Alaska’s most important emerging gold districts. The major miner Teck Resources Ltd. [NYSE.TCK] is their JV partner at the highly prospective Estelle property, which was initially drilled by Cominco in the 80’s. This project is located about 160 km northwest of Anchorage, and is adjacent to Kiska Metals’ [TSX-V.KSK] Whistler copper-gold deposit. Field work began at Estelle in early July with a $3.4 Million 2011 exploration budget funded by Teck, which if completed, will result in the major’s earning of a 55% interest in Estelle. Teck can then earn an additional 10% by spending another $5 Million and paying MRO $0.4 Million cash.

(Alaska project map courtesy of Millrock) 

Millrock recently JV’d the Cristo Project with Brixton Metals [TSX-V.BBB], which is also near Estelle and Whistler. The company’s early stage prospecting staked these claims covering their gold-copper porphyry targets called Monte Cristo and St. Eugene. Cristo, Estelle, and Whistler are all located within the same Kahiltna Terreane that also hosts Northern Dynasty [TSX.NDM] and Anglo American’s [LSE.AAL] supersized Pebble porphyry JV, which Millrock’s VP Exploration Phil St.George discovered.

The Uncle Sam project JV’d with Crescent Resources [TSX-V.CRC] is about 65 km southeast of Fairbanks in the Tintina Gold belt, and is 60 km west of Sumitomo Metal Mining Co.’s Pogo underground gold mine. Pogo is an important modern discovery that was quickly developed through production in the late 2000’s as a JV between Teck’s predecessor and the Japanese miner Sumitomo. Sumitomo ultimately bought out Teck’s interest and now owns and operates the Pogo mine.

Crescent began drilling this 2 km by 1 km soil anomaly in May, and on July 28^th the company announced their first results were successful. This program was designed to follow up on some good holes by the previous explorer, and all 4 holes in the Wolf Prospect hit very encouraging vein grades and thicknesses. The Wolf has a similar strike direction as Sumitomo’s Naosi discovery at the Stone Boy project, located 2 km to the southeast of the Wolf and 500 meters from the southern boundary of the Uncle Sam’s claims. The first 5 hole program at the Lone Tree target in the northern region of the claims has now been completed, and assays are pending.

The major mining company Kinross Gold Corp. [NYSE.KGC] recently poured over 5 Million ounces of gold at their Fort Knox open pit mine near Fairbanks, and is earning into two of Millrock’s JV projects in Alaska. The Council project is located on the west coast’s Seward Peninsula near Nome, and the Humble project is about 55 miles from Dillingham. At Council the JV is exploring an historic placer district that has produced about 1 Million ounces of gold, and it is one of two projects under an agreement with the Bering Straits Native Corporation (BSNC). 

Bluff is the second BSNC project being explored by a JV partner, Ryan Gold [TSX-V.RYG]. This new junior exploration company is named after Canada’s 2010 Prospector of the Year and its President, Shawn Ryan, whose White Gold discovery in the Tintina Belt and its subsequent acquisition by Kinross sparked the Yukon Territory’s modern gold rush. Bluff, however is located on the Seward Peninsula of western Alaska near NovaGold’s [TSX/AMEX.NG] Nome gold project. This year all of the ground work is being laid for a major drilling program next season, from which Ryan Gold anticipates calculating the project’s first resource estimate. RYG can earn 75% by spending a total of $6 Million developing Bluff.

Millrock Resources is continuously prospecting and developing new projects for their next joint venture opportunities. One of the more promising Alaska projects available for partnership is a group of three claim blocks in the Fortymile district near the Yukon border. These prospects at Fortymile are targeting the potential lode sources of the district’s historical placer gold production, which was about 300,000 ounces.

Arizona Projects

While the snow was falling in Alaska this winter, Millrock and their JV partners were busy exploring for elephant size deposits in southern Arizona. As announced in the company’s news July 26th, their JV partner Vale [NYSE.VALE] has found encouraging porphyry copper alteration buried underneath post-mineralization rocks at Galiuro with their initial two phases of drilling. This fall the major Brazilian miner will continue drilling deep for potentially related deposits that could be buried nearby.

The Galiuro project is targeting world class copper porphyry deposits on a 16,800 acre claim block just north of BHP Billiton’s [NYSE.BHP] San Manuel-Kalamazoo mine, and about 80 km southeast of Rio Tinto’s [NYSE.RIO] Resolution deposit and adjacent Magma mine. San Manuel’s block caving operation was one of the world’s largest underground mines in the 1990’s prior to being closed during low copper prices around the turn of the millennia, which was also when the Magma mine closed. Resolution is now deepening the Magma mine’s #9 shaft well beyond a mile deep, and preparing to sink 4 more shafts into one of the world’s largest undeveloped high grade copper deposits. 

(Arizona project map courtesy of Millrock)

The copper miner Inmet [TSX.IMN] is funding exploration at the San Jose and Dry Mountain projects in the southeastern region of the Arizona Copper Belt between Freeport McMoRan’s [NYSE.FCX] Morenci and Safford mines. Morenci is currently one of the world’s biggest open pit copper mines, and it was continuously one of Phelps Dodge’s most important mines since they began development in 1881 until their merger with FCX in 2007. The Safford mine just began producing copper in 2008, two years after Phelps Dodge started construction.

The San Jose claim block is located at the intersection of the prolific Morenci and Safford porphyry trends, where Noranda previously discovered porphyry mineralization while drilling a blind geophysical anomaly here in the early 1990’s. Dry Mountain is located about 20 km southeast of San Jose along the Morenci trend, and is another buried geophysical anomaly with encouraging geochemistry.

In April Millrock completed option agreements for the Rainville project on the Safford trend. This project is now available for a JV partner to advance the prospect beyond preliminary exploration. Geological modeling, geochemistry, and geophysics suggest there is potential for a large porphyry copper deposit to be hiding somewhere in these rocks.

(Map of Freeport McMoRan’s mines from their website http://www.fcx.com/operations/northamerica.htm)

Conclusion

Investing in early stage mineral exploration provides shareholders with the most upside potential for value growth, but is also inherently risky and capital intensive so Millrock Resources uses the prospector and generator business model to balance this risk and reward. The company is led by accomplished explorers who have built an impressive portfolio with over a dozen highly prospective projects in the mining friendly States of Alaska and Arizona. Their joint venture partners are reputable major and junior companies who are spending about 90% of the portfolio’s total $16 Million exploration budget on drilling, sampling, and mapping programs over the coming months. Moreover, unlike most exploration companies Millrock generates positive cash flow from management fees and option payments on their JVs, so their office and administrative costs are covered without having to dilute the company’s share structure.

Over the coming year Millrock will be constantly generating news flow from their active field crews and numerous JVs with rigs turning in Alaska this summer, plus upcoming drilling projects in Arizona this fall. Each new hole provides more geological information about their targets’ geological potential and is an opportunity to make a major new discovery that could multiply their company’s value many times over. Consequently, Millrock offers investors an outstanding opportunity to speculate on the discovery of numerous large gold and copper deposits with minimal risk exposure, making them especially attractive in today’s market.

Simon Russell

Mining Analyst, GoldSeek.com

Simon Russell is a mining and geological engineer with 10 years of diverse experience. His background includes hydrology and environmental engineering, exploration geology, underground contract mining, mine engineering and project management, and mine investment analysis. Mr. Russell has worked for many different types of mineral projects internationally and across the western United States for investors, consulting firms, and both major and junior resource companies.

Mr. Russell is not and investment advisor, nor is this an investment advice.

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-- Posted Thursday, 8 September 2011 | Digg This Article